So far in this series (Part I, Part II) we have examined four out of the five pillars of engineering the resilient enterprise: the right leadership, the right incentives, the right architecture and the right culture. In the final article we will focus on the most controversial of the building blocks, which is performance management.
Cross-posted to LinkedIn Pulse
Right management approach
Measure, measure, measure
"If you cannot measure it, you cannot manage it"— this is a mantra that is as often heard as it is misunderstood. Misattributed to Drucker and misquoted from Deming, it is a maxim whose misapplication has caused as much harm to businesses as its diametric opposite. The difficulty in measurement lies in two areas: one, not everything that needs attention in organization can be measured, or at least measured meaningfully, and, two, for the right results we need to know what to measure and the right way to measure it.
To address the first point, I will posit that management is the art and science of achieving measurable outcomes in organizations under the normal constraints of business: schedules, budgets, regulation, competition and technology, while leadership is the art of creating the right culture and work environment to enable management to be effective. To put in another way, leadership is the art of influencing the unmeasurable. If we look at it this way, then the above-mentioned quote becomes much less controversial and considerably more useful. We have discussed leadership and culture in a prior article, so here we can focus on performance management.
Defined as I have done it, management is indeed a discipline driven by measurement and data. The trick is to know what to measure and how to achieve the necessary metrics. There is ample evidence that you tend to get exactly what you measure, so we need to be very careful that we do not create perverse incentives that might be baked into the very metrics we select for scrutiny. Every industry has a well-known set of KPIs, which can be a useful guideline. The trick in adapting the standard KPIs to actionable metrics, as I have mentioned previously, is to war-game the metrics for unintended consequences. The path to finding the right metric and applying the right incentives can oftentimes be anything but a straight line.
Set and evaluate objectives
Although it has of late been trendy to malign management by objectives as a method of performance management, it remains the most effective tool in our kit when properly and thoughtfully applied. Truth be told, there seems to be a cottage industry for debunking well-loved and useful management techniques, but I digress. Objectives can be quantitative, where it makes sense to make them so, or soft when it makes sense otherwise, as long as their fulfillment is not subject to a manager's arbitrary judgment. Once you have determined which KPIs to measure and how their related metrics can be attributed to managers, teams and team members, it becomes possible to establish individual objectives.
To be effective, objectives must absolutely lie within the realm that the employee can control or directly influence, or else setting such objectives will backfire. They must be sensible — for instance it makes no sense to measure programmers on how many lines of code they produce if this code does not deliver necessary fictionality, or to measure widget makers on their volume when quality is of paramount importance. Furthermore, objectives must encompass outcomes and never methods, in keeping with the Auftragstaktik principle we have expanded on previously, because micromanagement is generally destructive and ultimately ineffective. Their scope should correspond with the scope of responsibly of the employees — for instance, a divisional GM might be tasked with taking her business' market share to the number one or number two position, as Mr. Welch had famously charged his cabinet, while a tech product owner's objective would be much narrower.
Performance against the set objectives should be measured frequently — as frequently as the scope of the objective reasonably allows — and the use of each particular objective should be evaluated often, to make sure that it serves to advance overall long-term shareholder value.
Evaluate continuously
The inadequacy of the annual performance review as a central tool of management has been recognized for quite some time, and this realization is finally, if tentatively, being translated into action. The fact is that a year as an interval between errors and correctives is far too great to permit effective feedback, thus allowing performance issues far too long to fester. Ideally, instead, we can implement continuous performance management with discrete and frequent measurement of goals and objectives, making underperformance easier to catch and correctives to apply in a more timely manner. If your management by objectives process is well implemented, it will become possible to take steps toward continuous evaluation, at specific MBO level. Under continuous evaluation each objective is evaluated on completion, with more complex activities divided into progress checkpoints by mutual agreement between the manager and team member. Collaborative objective-setting serves to raise morale and increase job satisfaction and objective buy-in by offering team members a sense ownership of their work. Trends in MBO achievements and responsiveness to feedback would be logged and used in determining continuing employee fit and future work assighments.
Once you have ditched the periodic review, you can also get rid of the annual performance-related pay adjustment. The fact of the matter is that most employees are not much motivated by the small adjustment we like to call a merit raise because it soon gets lost in the biweekly paycheck, and the rush, if any, of receiving it is soon forgotten. On the flip side, employees soon learn than a great way to get a raise is to change employers, which serves to distract them from their work and elevate your turnover costs. Instead of feeding this destructive cycle, you might wish to ensure that each competent employee receives market rate pay commensurate with her experience, and that each employee knows that his pay is indeed set to be at market every year — or another interval, depending on how rapidly pay changes in your business. This is hardly a new insight, and a number of well-managed companies have already moved to competitive pay policies, with generally positive results.
Once base pay is set by market metrics, performance excellence can be recognized — depending on what is appropriate to their function — with performance pay schemes, internal or external recognition, thank-you gifts, visible perks and status symbols and — now and then — promotions. That last incentive must be used as carefully as a hand-grenade, however, lest we promote people to the level of their incompetence. Moving individual contributors to management roles in particular can be disastrous unless they are interested in the role, have the aptitude, and receive real training for it. For this reason, well-managed companies have some tome ago began establishing non-management promotion tracks that allow you recognize team-member skills, knowledge and performance without forcing people into roles for which they are not well suited. The flip-side of advancement, is of course managing out those employees whose performance stays below par and shows inadequate improvement — because no matter how careful we are in hiring, none of us are perfect.
In conclusion
The five pillars of the resilient enterprise depend on and reinforce one another. When implemented well, they allow companies to avoid most of the hidden rocks littering the shipping lanes of business, and to recover well and quickly from the ones that could not be avoided. We can bring together all the principles in a short do-list, as it follows:
- Hire the right leaders and empower them to carry out their job
- Architect the organization to minimize destructive conflict and place authority and responsibility closest to the market action
- Shape the culture in accordance with the nature of the business, the market and the surrounding milieu
- Practice management by objectives, whether you use the OKR method or another way, whether you have management set objectives or have them negotiated between managers and team members
- Separate base pay from performance incentives and pay published market base rates
- Design incentives that are effective for target populations: engineers, for example, should get internal recognition, a chance to work on their own projects and speak or publish to the wider world, while salespeople, who tend to thrive on competition and be motivated by cash rewards, should to be offered those
- Tie incentives to measurable objectives which are set and read frequently, and be sure to expect and to reward initiative
- Ditch the annual performance review cycle — it is a waste of time for both manager and staffer — move instead to continuous performance management at all levels in your organization
- Practice continuous improvement — plan, do, study, act
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